The Balancing Settlement Code (BSC) panel will be able to take faster action if a supplier is at risk of failure and apply more stringent operating restrictions under an amendment to the BSC due to take effect on 27 February.
The modification P385 was proposed following a rise in defaults and the amount of unpaid charges left to be recovered from other companies still operating.
The panel already has the ability to suspend a party’s right to trade, receive data or register new meters or balancing mechanism units. It can also expel them from the BSC or recommend a block on them taking on new supply customers.
These powers can currently be activated in seven scenarios, each referred to as an “event of default”. All involve the failure of a party to either maintain sufficient credit cover for its outstanding trading charges, including imbalance charges (credit default), or pay the BSC charges used to cover the costs of operating the code (payment default).
P385 will introduce two new scenarios and make changes to several existing ones, including removing some parameters from the BSC and leaving them at the discretion of the panel.
The new events will be triggered if a party’s credit cover is used to pay trading charges on three or more occasions within a 30-day period, or if it publicly announces that is ceasing to trade. In the case of the latter, the panel is currently unable to act until the company explicitly admits to code administrator Elexon that it will be unable to pay its debts.
Under current practices, an event of default is triggered if a party fails to pay its monthly BSC charges for more than 15 business days after they are due. This period will be reduced to five days and there will be an additional trigger if they default on three occasions within a rolling 12-month period.
An event of default is also triggered if a party breaches its credit cover limits six times within six months. This number will be reduced to three.
Michael Gibbons, chairman of the BSC panel and the board of Elexon, said: “Nobody wants to see energy companies in financial distress. However, when this does happen, the BSC panel needs to have powers to act more quickly. This protects other BSC parties from incurring additional charges.
“The current arrangements for triggering events of default are complex and can prolong the period before the panel can intervene. Having these newly defined events in place will make it easier for the panel to take action more quickly when a company is at risk of financial failure, so that the costs to the industry and consumers are minimised.”
The amendment was passed by the BSC panel in November and does not require the approval of Ofgem.
According to Elexon, a total of 16 parties were through the regulator’s supplier of last resort process over the last two years (2018/19), leaving £4.7 million of trading charges to be picked up by the remaining suppliers and generators.